Discover Chairman and CEO David Nelms emphasizes that the financial benefits of partnerships with companies like PayPal and Ariba will not come right away.

"These partnerships present long-term opportunities," Nelms said during Discover's second-quarter earnings call on July 23.

Discover Financial Services reported net income rose 15%, to $602 million, from $525 million a year earlier. The company's return on equity was 23%.

Discover recently private-labeled its processing network for Ariba to create AribaPay, a single system to handle procurement, invoicing and payments. AribaPay will allow business to manage supply chains and make payments from the same platform, and is expected to launch by early 2014.

"This partnership will leverage our existing network infrastructure facilitate low-cost business to business payments," Nelms said. 

Discover's partnership with PayPal, which launched in April, allows Discover merchants to accept PayPal payments at the point of sale, combining Discover's substantial merchant base with PayPal's consumer base.

Discover is processing some transactions through the PayPal partnership, mostly on a test basis for the time being, Nelms says, adding the partnership has signed more than 50 merchant acquirers. "We have a lot of acquirers and merchants to sign, this will take some period of time," he said. "The majority of the work is still ahead of us."

The partnership is designed to boost PayPal's presence in brick-and-mortar retailers, while playing a major role in Discover's strategy to support a number of emerging payments methods without committing to a single model.

Discover's channel diversification strategy includes strategic relationships with Google and Isis.

The card network also flexed its muscle internationally over the past few months. Discover partnered with China's UnionPay to offer UnionPay prepaid cards in the U.S. and entered a strategic alliance with Network International, a Middle Eastern Payment provider, to allow cross border card acceptance.

During the earnings call, Discover announced it would be the exclusive card issuer for the University of Nebraska, among a group of universities recently added to Discover's network. Nelms did not name the other colleges.

In other earnings, Discover reported Direct Banking pretax income of $1.0 billion in the quarter was up  26% from a year earlier. The company's Payment Services division's pretax loss for the quarter was $21 million, which the company attributed to pretax charges of $55 million related to supporting Diners Club International franchises (Discover acquired Diners Club International form Citi in 2008), as well as a $15 million increase in loan loss provisions for prior franchise loans. Payment Services volume was $49.4 billion in the second quarter of 2013, down 2% from the prior year and Pulse transaction dollar volume declined 3%, which Discover attributed to merchant routing and competitor actions. Discover also reported a delinquency rate of 1.58% for credit card loans over 30 days past due, an improvement of 27 basis points from 2012 and 19 basis points from the prior quarter.

Discover's Diners Club partners in Europe include a mix of bank and non-bank franchise owners, and have been subject to challenge due to Europe's weak economy, Nelms said. "Some have had liquidity problem similar to other businesses in Europe," Nelms said, adding that while the charge was a "one time" event, European weakness could provide headwinds for a longer term.

 

 

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